Gavin Howe
In the United States, tax laws are created by Congress and the President. Congress passes tax laws (the Internal Revenue Code) that establish the broad framework of the tax system. The Internal Revenue Service (IRS) does not make the law, but it does organize and police it. The IRS also publishes interpretations of the tax code, which are easier to read than the code itself. The Treasury Department, under the President's authority, writes tax regulations through the IRS, which interpret the tax code and provide detailed guidance on how the laws should be applied.
| Characteristics | Values |
|---|---|
| Who writes tax laws? | Congress |
| Who writes tax regulations? | The Treasury Department (under the President's authority) through the IRS |
| Who enforces tax laws? | The Internal Revenue Service |
| Who interprets tax laws? | The IRS, U.S. Treasury Department, and the courts |
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What You'll Learn
The role of Congress
The United States Constitution gives Congress the power to tax. Congress typically enacts federal tax law in the Internal Revenue Code (IRC) of 1986. The IRC can be found in Title 26 of the United States Code (26 USC). An electronic version of the current United States Code is made available to the public by Congress.
Congress writes the tax code itself through legislation. The House of Representatives passes its version of the tax law, which is then sent to the Senate Finance Committee. The committee can either agree with the House version and send it to the Senate for a vote, or make amendments and send the amended version to the Senate. The Senate then passes its version of the tax law. If the Senate passes the House version, the bill goes to the president to be signed into law. If the Senate passes an amended version, a Conference Committee is appointed to merge the two bills. This committee is made up of members from both the House and the Senate. The Conference Committee modifies both bills into a single one that is likely to get the most votes from each house. Finally, both the House and the Senate pass the newly revised bill, after which the president signs it into law.
Congress does not write the detailed regulations that implement these laws. The Treasury Department, under the President's authority, writes tax regulations through the IRS. These regulations interpret the tax code and provide detailed guidance on how the laws should be applied. The IRS drafts regulations, which are then reviewed and approved by Treasury officials. This process involves public comment periods where taxpayers, tax professionals, and other interested parties can provide feedback before regulations are finalized.
The Internal Revenue Service (IRS) does not make the law, but it does organize and police it so that taxpayers can pay their taxes and those who don't are identified. The IRS publishes other forms of official tax guidance, including revenue rulings, revenue procedures, notices, and announcements. The IRS also provides interpretations of the tax code, which are easier to read than the code itself.
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The role of the President
The President plays a crucial role in the creation and enactment of tax laws in the United States. While Congress is responsible for writing and passing tax laws, the President has the authority to sign these bills into law. This process ensures that tax legislation is enacted with the approval of both the legislative and executive branches of the government.
The Department of Treasury, which falls under the President's authority, plays a key role in drafting recommendations for tax laws. These recommendations are presented to the House Committee on Ways and Means, which then creates the "House version" of the tax law. The House of Representatives votes on this version, and if passed, it is sent to the Senate Finance Committee. The committee can either agree with the House version and send it to the Senate or make amendments before sending it for a vote.
If the Senate passes the same version as the House, the bill goes directly to the President for signature. However, if the Senate passes an amended version, a Conference Committee is appointed to merge the two bills into a single version that is likely to receive the most votes from both houses. After both the House and the Senate pass the revised bill, it is sent to the President for their signature.
The President's signature on the tax bill signifies its transformation into law. This step is a critical part of the law-making process, as it represents the executive branch's approval and authorization for the law to take effect. While the President does not create new taxes or fundamentally change the tax structure—a power held by Congress—their role in signing tax bills into law is a vital aspect of tax legislation.
Additionally, the Treasury Department, under the President's authority, writes tax regulations through the IRS. These regulations interpret the tax code, providing detailed guidance on how the laws should be applied. The IRS drafts these regulations, which are then reviewed and approved by Treasury officials. This process includes public comment periods where taxpayers, tax professionals, and other interested parties can provide feedback before the regulations are finalized.
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The role of the Treasury Department
The U.S. Treasury Department plays a crucial role in the creation and interpretation of tax laws and regulations. While Congress writes the tax laws (also known as the Internal Revenue Code or IRC) and establishes the broad framework of the tax system, the Treasury Department is responsible for writing the detailed tax regulations that interpret and implement these laws.
The Treasury Department, under the authority of the President, works through the Internal Revenue Service (IRS) to draft and review tax regulations. These regulations provide official interpretations of the IRC, offering guidance to taxpayers on how to comply with its requirements. The regulations are published in the Federal Register and are available to the public, ensuring transparency and accessibility.
The process of drafting tax regulations involves collaboration between the Treasury Department and the IRS. The IRS plays a significant role by drafting initial regulations, which are then reviewed and approved by Treasury officials. This review process includes public comment periods where taxpayers, tax professionals, and other interested parties can provide feedback and contribute to the finalization of the regulations.
The Treasury Department's interpretations of the tax code are essential in guiding the implementation and enforcement of tax laws. While the IRS enforces tax laws, it is the Treasury Department that ensures consistency and clarity in how these laws are applied. This includes providing directions to taxpayers on complying with the IRC's requirements and addressing issues that arise related to existing laws.
Additionally, the Treasury Department's regulations serve as a reference for courts when interpreting ambiguous parts of the tax code or regulations. The courts' interpretations can further shape how tax regulations are applied in practice, creating a dynamic and evolving landscape of tax law interpretation.
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The role of the IRS
The Internal Revenue Service (IRS) is the revenue service for the United States federal government. It is responsible for collecting federal taxes and administering the Internal Revenue Code (IRC), the main body of federal statutory tax law. The IRS does not make the law, but it does organise and police it, translating the specifics of these laws into detailed regulations, rules, and procedures.
The IRS is an agency of the Department of the Treasury, led by the commissioner of Internal Revenue, who is appointed to a five-year term by the president. The IRS's duties include providing tax assistance to taxpayers, pursuing and resolving instances of erroneous or fraudulent tax filings, and overseeing various benefits programs, including the Affordable Care Act.
The IRS publishes official tax guidance, including revenue rulings, revenue procedures, notices, and announcements. Revenue rulings are official interpretations of the IRC, related statutes, tax treaties, and regulations, providing guidance to taxpayers, IRS personnel, and tax professionals. Revenue procedures provide return filing or other instructions concerning an IRS position. Notices contain guidance that may involve substantive interpretations of the IRC or other provisions of the law.
The IRS also issues private letter rulings (PLRs) and technical advice memoranda (TAMs). A PLR is a written statement issued to a taxpayer that interprets and applies tax laws to their specific circumstances. A TAM is guidance furnished by the Office of Chief Counsel in response to technical or procedural questions that develop during a request for a PLR or an examination of a taxpayer's return.
In addition to its tax-related duties, the IRS has also been involved in enforcing laws relating to the prohibition of alcohol sales and manufacture from 1919 to 1930, when this responsibility was transferred to the Department of Justice.
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The role of the Courts
The US Tax Court, established by Congress, is a federal court specialising in tax issues. It is a judicial forum where individuals or entities can contest tax deficiencies determined by the Internal Revenue Service (IRS) before paying the disputed amount. The US Tax Court is located in Washington, DC, and has 19 members appointed by the US President. These judges travel nationwide to conduct trials in various designated cities.
The US Tax Court covers a range of tax-related topics, including income, estate, and gift taxes, as well as issues with the IRS. It hears cases relating to notices of deficiency, worker classification, and reviews of collection actions. When a taxpayer receives a Notice of Deficiency letter from the IRS, they must file a petition with the US Tax Court within 90 days if they wish to dispute the determination.
The US Tax Court has its own Rules of Practice and Procedure, which govern the conduct of trials and other proceedings. These rules include provisions for subpoenas, fees, failure to appear, briefs, oral findings, computation of decisions, and various other aspects of the judicial process. The Court's rules and forms can be accessed on its website, and physical copies can be purchased from the Clerk's Office.
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Frequently asked questions
Tax laws are written by Congress and the President. The Internal Revenue Service (IRS) does not make the law, but it does organise and enforce it.
The Department of Treasury drafts recommendations for tax laws from the President. The House Committee on Ways and Means then creates the "House version" of the tax law, which is presented to the House of Representatives for a vote. If the Senate Finance Committee agrees with the House version, it goes straight to the Senate for a vote. If not, the amended version is sent to the Senate for a vote. If the Senate passes the House version, it goes to the President to sign. If the amended version is passed, a Conference Committee is appointed to merge the two bills, which then go back to the House and Senate for a vote. The President then signs the bill into tax law.
Tax regulations are different from tax laws. Tax regulations interpret how existing tax laws should be implemented and enforced. These are written by the Treasury Department, under the President's authority, through the IRS.
